Business Strategy and Human Resource Policies and Practices for IKEA Corporation - Case Study Example

Business Strategy and Human Resource Policies and Practices (IKEA Corporation) Student’s name: Instructor’s name: Course code: Date of submission: Table of Contents Company overview 3 STEEPLED analysis of IKEA Plc 4 Opportunities and threats faced by IKEA Plc 6 Business strategies 7 Customer service management 7 Technology development 8 Promoting a creative and innovative culture 8 Strengths and weaknesses 9 Human resource strategies 9 Employee training and development 10 Diversity management 11 Employee engagement 11 Human resource planning 12 HR policies and practices 12 Developing a career development programme 12 Designing a comprehensive reward package for the employees 13 Developing an elaborate employee training and development 13 Conclusion 14 References 15 Introduction In the changing business environment, the role played by human resource strategy is increasingly becoming of great importance. This is because it helps align this important resource with the emerging challenges by enhancing creativity and innovation to problem solving (Collins & Smith, 2006). The strategy one uses in managing its human resources greatly depends on the individual goals and objectives as well as the business environment, in which the business operates in. For one to come up with a competitive human resource strategy, There are specific steps that must be followed and which include analyzing the external environment using the STEEPLED model, identifying the various business opportunities and threats, identifying a suitable business strategy and which must be related with the business strength and weaknesses and then finally, formulating the HR strategies to be followed. However, more important is implementation of the HR strategies and which is affected the designed HR policies and practices. This forms the basis of this report which will be the discussion of the HR policy and practices needed to implement the HR strategy at IKEA Plc. Company overview IKEA Plc is the global leader in the mass-market retailing commonly known for selling the Scandinavian-style home furnishings. The company also sells other household goods in its established 230 stores which are situated in 33 countries globally. The company currently employs 154,000 employees working in all its retail stores. It is estimated that the Company hosts over 410 million customers each year (IKEA, 2014a). The name of the company is related to its founder, Ingvar Kamprad and his boyhood home which was known as Elmtaryd, Agunnaryd. The company started operating for the first time in 1943 in Sweden. The company is widely recognized because of its ethos which is based on cost obsession which is highly fused to its design culture. This is because the company beliefs that no design will get its way to its catalogue if it’s not affordable (IKEA, 2014b). Perhaps, this is one reason that has made the company the most successful in the mass-market retailing. Despite the fact that the company has remained successful, it is not true to say that it has not been or will be faced with challenges that require a competitive human resource strategy supported with the right human policies and practices as will be seen later in the analysis. STEEPLED analysis of IKEA Plc Sociological factors and consequences: The sociological factors in the business environment that are likely to affect the company operations include differences in tastes and preference as well as beliefs. For instance, while some consumers may be interested in quality others will be interested in fashion irrespective of the price (Zentes et al, 2007). This affects the demand of the customers in the sense that they will prefer those retailers who best serve their expectations. Technological factors and consequences: The change in technology is also a major factor in the business of IKEA. For instance with the emergency of the Radio Frequency Identification (RFID) and online shopping, the marketing is looking for a company that can offer convenience. Further, technology in the retail industry is also facilitating faster and save payments apart from giving the customer excellent shopping experience (Collins & Smith, 2006). Finally, with technology, businesses are now relying on social media as the most unconventional marketing channels that creates customer awareness and ease traffic on the company website. Economic circumstances and consequences: Many of the economies globally have continued to grow. This has continued to increase the consumers’ purchasing powers. This will definitely benefit the respective companies in terms of profits. With the emerging economies, there is potential for economic growth of the markets and thus, presenting promising prospects for retailers (Analoui, 2007). In addition to this, there is also the aspect of cost of labor and skilled labor which has a direct in the profit margins of the companies in the retail sector. Finally, the exchange rates of various currencies have continued to fluctuate. This has a direct impact on inflation of various markets. Environmental circumstances and consequences: There are two major environmental factors that affect the operations of various businesses including IKEA Plc. First and foremost, there is the need to be ethical, sensitive and accountable towards carbon-emissions, forest management, water resource management and community development. This is not to ensure business success and its sustainability (Zentes et al, 2007). Also, the company is subject to scrutiny in order to determine how it contributes towards emission and the disposal of wastes. Political circumstances and consequences: One important political factor in the external environment and that is likely to affect the company, is the fact that each country has its own taxing system and rates (Zentes et al, 2007). For the purpose of illustration, the UK government charges 30% of profits from all companies operating there. This is against 35% for the United States and Japan at 42%. This means that the company performance in terms of profits will depend on the prevailing corporate taxes. In addition to this, different governments have various tarrifs and trade barriers which may hinder the business from penetrating to other foreign markets. Legal context and consequences: The prevailing legal factors in the external environment and that are likely to affect the business include consumer protection laws and more especially on pricing something that is likely to affect both the cost of doing business and profit margins (Batt, 2002). This is the case because with certain quality standards, the company is likely to spend more in order to attain them. This is very well illustrated in the case of Australia and its Sale of Goods Act 1989 which stipulates certain standards that the products must meet. Ethical implications and consequences: With the growing competition in the world of business, there is a high possibility that businesses will dissolve to use unfair means to have a competitive advantage over the rest. This could be done using such means as lowering quality and quantity and charging high prices (Batt, 2002). Further, companies may also use unfair marketing strategies by giving incorrect information with the aim of attracting the market. In this case, the company is responsible in ensuring that it acts within the minimum acceptable trading standards. Demographic context and consequences: There are four sociological factors that are likely to affect the company and its operations. The first factor is the fact that such variables as income, age, family size and many others are likely to affect its strategies (Boselie et al, 2001). For instance, the ageing population is likely to spend less in furniture and other related products while the young generation would prefer trendy that will add value to any purchase they make. Also, the other factors in the external environment that might affect the company include: change in demographics as a result of migration; cultural factors and fashion and consumer behaviors are also likely to affect the market demand. Opportunities and threats faced by IKEA Plc Opportunities Various opportunities present themselves towards IKEA and this is as a result of the purchase trends experienced in the DIY stores. This is more especially in the case of the furniture sector. In the market there is also the desire to offer quality products and special discounts and offers as well as excellent customer service. In the world market, there is also increasing demand for green and low-priced products which are manufactured with major consideration to the natural impact. There is also opportunity to reduce carbon emission and even achieve zero wastage. This is supported by stakeholder, supplier and consumer relationship management. This could result to three massive opportunities and which include: business sustainability, its competitiveness and enhanced profit margins. Threats Global economic recession and suppliers’ related issues are specific threats to the business. There is decreased entry into the housing market by individuals and corporate bodies worldwide. This is likely to affect the demand furniture and other related products. IKEA is also subject to competition from such companies as Seamens, B&Q, John Lewis, Argos among others. This is happening alongside the decline in the disposable income. This requires the reforming of the value chain and enhancement of the innovative technology. Business strategies In order to respond according to the identified business opportunities and threats, IKEA has come up with three specific business strategies that are important in exploiting them and manage the available the identified threats. The three business strategies include: customer service management, technology development and promoting of a creative and innovative culture. Customer service management This is the first and most important business strategy that IKEA intends to employ in order to be able to exploit the available opportunities and manage the anticipated threats in the market. This strategy is basically focused on creating close contact with the consumers using various ways. For instance, the company apart from online access and email communication, the company intends to use the social media in order to remain in touch with its customers. This is the case because with the social media, the consumers could have their queries attended to almost immediately (Gareth Bell, 2012). Technology development One of important issues that have emerged from the analysis is the demand for quality products and affordable prices. This is important to the business in the sense that it confirms the existence of the market for the company products (Gareth Bell, 2012). However, efficiency remains an issue with the company. It is through efficiency that the company will be able to manage cost and produce more affordable products as opposed to the rival businesses. For this reason, the company apart from developing an integrated technology, more focus is on the technology that will help the company enhance on its designs and logistics management. This is not only important in ensuring quality products but also in reducing the logistics related costs. Promoting a creative and innovative culture As noted earlier, since its foundation, IKEA has been guided of its ethos which is based on the need to ensure best designs at affordable prices something that has made him a leader in mass-market retailing (Zentes et al, 2007). This is the case because the company values both time and money. Now with demand for green and low-priced products becoming major opportunities in the market, IKEA is adopting nurturing a creative and innovative culture where individuals are encouraged to come up with innovative ways on how produce green and low-priced products for the market. Strengths and weaknesses Based on the identified business opportunities and threats and the business strategies, it is important to point out that even though the company is doing very well as compared to its competitors, still there is an implication for the human resource and its systems. Strengths The company has a large workforce with diverse skills and capabilities. The company currently employs over 154,000 employees. This is important in ensuring that the business does not run short off its important resources. Weaknesses 1. The company has no clear employee training and development policy. 2. Diversity management continues to remain a big challenge for the company. 3. The company is also experiencing low levels of employee engagement 4. The company also lacks a clear retention and turnover management Human resource strategies Given the above analysis, it is clear that the company despite being the leader in mass-market retailing, there are specific issues that need to be addressed for it to remain stable and competitive in the industry. This is more especially in the line of the human resource and its strategies. The specific issues that warrantee the development of different human resource strategies by IKEA include change in customer service demands, change in technology and also the need to deliver quality but affordable products to the market something that require high level creativity and innovation. However, before considering the specific human resource strategies that will be suitable for this business, there is need to determine whether the company should adopt best-fit or a generic approach to problem solving. Now considering the kind of issues that the company is facing currently, no single issue that is static and that will be addressed once and for all (Wright et al, 2005). For instance, technology continues to evolve. What this means therefore is that skills the employees may be required to have today, may be obsolete tomorrow. In that case therefore, stands no change of having a strategy that will stand the test all the time. For that reason therefore, IKEA has no option but to adopt a HR strategy that is best-fit and that addresses specific issues rather than general. On the same line, the company performance depends on a number of factors which are both from the external and internal environment. Because of that reason, what the company is expected to adopt is a hybrid of the environmental fit and external fit approaches to strategy. This will ensure good balancing of the company focus on the various issues without ignoring any (Reynoso, 2009). Finally, because the human resource strategy does not operate in isolation but in relation to the business practices and other functions of other human resource practices, both the internal and vertical fits of HR practices must be ensured. Having established this and how IKEA should work out on its HR strategies, the following are the specific HR strategies that IKEA must ensure. Employee training and development While employee training is important in the acquisition of new knowledge and skills, employee development is recognized for cultivating and expanding the available knowledge (Guest, 2002). What this means for IKEA therefore, is that the first HR strategy that it should consider employing in its quest to be more productive and competitive in the industry by addressing the emerging issues, is by embarking on an objective employee training and development programme. With employee training and development, IKEA will be able to equip its staff with the knowledge and skills they require in the production process, supply chain management and also in the product market. Diversity management IKEA is one of the companies in Australia that draws its workforce from various backgrounds. While this can be a positive to the business in terms of diversity in skills and knowledge, is an issue that can also work very well against the company (Guest, 2002). This is because issue of discrimination based on discrimination based on gender, age, disability, religion, ethnicity, language, linguistic capability and sexual preference. The reason as to why diversity management should be embraced is because it will help the business promote equity and fairness in the workplace. This will go creating a sense of appreciation and accepting one another which are a very important attribute for customer service management. Employee engagement Employee engagement is one of the important strategies of human resource and it entails active, energetic, willing participation by employees in their work and the life of the organization (Thelander, 2009). Given the fact IKEA is a retailer who has been in operation for very many years, the strategy of employee engagement will be a good thing in the sense it will help a team of happy employees who are result-oriented and can work together and harmoniously for the good of the company. This is important in understanding the business better and the specific expectations the customers have about the company. This will go along in making available for the customer, the most competitive products and services. Human resource planning Australia is one of the few examples in the world where shortage of labour is being experienced. This is merely because of the small population and the large population of the ageing people who leave the workforce (Wright et al, 2005). This is a threat to many of the organization since it will continue affecting their operations in terms skill and experience. With this reason in mind therefore, IKEA has no option but to engage in workforce planning. With workforce planning, IKEA will be able to deal with such challenges as skill shortage, chronic labour shortage, and rapid change in technology, inter-employer competition for employees and employee mobility. This strategy is therefore important in ensuring that the company has got in place the most reliable team that can serve at various capacities. This is where the concepts of external and internal fits play as the company will be forced to emerge its internal strategies with happens in the external environment for long term sustainability. HR policies and practices Developing a career development programme One of the important areas of interest by the employees is how the employer handles individual career development (Rogg et al, 2001). This is because employees will prefer to work for an employer who is positive about his employees and who can assist them grow their careers. For this reason therefore, the following activities must be performed by IKEA as part of career development policy in order to foster the employees’ loyalty and their skills: provide regular tuition to its staff, enhance company technology training programmes, giving time offs for the employees to attend different seminars and other short courses and monitoring all other programmes that help grow the careers of its employees. This is important in ensuring that the employees are committed to doing their because of the experience they get. This encourages creativity and innovation as employees will always remain relaxed and focused on what they do. Designing a comprehensive reward package for the employees Another important HR policy that IKEA must develop is that of compensation. In addition to the basic salary, the company must be able to provide other types of compensations that motivate the employees in doing their work. First and foremost, is to put in place a variable-pay system that rewards the employees based on their performance (Thelander, 2009). After this has been reached, the company can provide other offers such as stock options and cash bonuses because of their sustained productivity and performance. The other benefits that could be provided alongside the compensation reward package include Social Security insurance, Medicare, vacation package, different leaves and worker’s compensation insurance. Developing an elaborate employee training and development Finally, because the company is in dire need of skills and knowledge, there is need to come up with a comprehensive employee training and development programme that will help them acquire new knowledge and skills (Rogg et al, 2001). The employee training and development activities that the company could include in its programme include: coaching, job rotation, off-site training and succession training. All these activities should be aimed enhancing the employees’ capacity in terms of skill and knowledge in order to undertake various roles. Further, these activities help the employees become more creative and innovative when serving the customers and also using other organizational apparatus and more especially the ones for technology. Conclusion This analysis has covered on the various human resource policies and practices that can be applied in an organization to realize its business strategy. This has been done in relation to IKEA Corporation. There are three specific business strategies that the company is pursuing and whose performance depends on the role played by the human resource. In general, what has been established from this study is the fact that while human resource strategies are important in helping any given organization realize its goals and objectives, it is important to have in place suitable human resource policies and practices that can be used as a guideline to implementing them. References Analoui, F. (2007) Strategic Human Resource Management, UK: Thomson Learning. Armstrong, M. (2001) A Handbook of Human Resource Management Practice, London: Kogan Page. Batt, R. (2002). Managing customer services. Human resource practices, quit rates, and sales growth. Academy of Management Journal, 45, 587-597. Becker, B. E., Huselid, M. A. and Ulrich, D. (2001) The HR Scorecard: Linking People, Strategy, and Performance, Boston: Harvard Business School Press. Boselie, P., Paauwe, J. and Jansen, P.G.W. (2001) Human Resource Management and Performance: Lessons from the Netherlands. 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